A recent Law 360 story by Alexa Scherzinger, “Lehman Should Pay $58M For Trial Fees, Insurer Says”, reports that, in the aftermath of a trial with decade-old roots, Assured Guaranty Ltd. moved to recover $58 million in expenses it incurred during its battle with Lehman Brothers over credit default swaps, which the insurer won in a bench trial ruling this March. In a memorandum of law filed in New York state court, an Assured unit said it's entitled to fees under the 1992 ISDA Master Agreement it holds with Lehman Brothers International Europe (LBIE), a now-bankrupt unit of the global investment firm. The agreement, Assured told the court, said that LBIE would indemnify Assured for all costs incurred by reason of the enforcement and protection of the insurer's rights under the agreement.
Assured sought to recoup about $58 million in out-of-pocket expenses, including attorney fees, that piled up during the nearly 14-year-long dispute over 28 credit default swaps, which Assured terminated in 2009 in the wake of the global financial crisis. LBIE, a broker-dealer, bought credit protection in the forms of residential mortgage-backed securities and corporate loan securities from Assured unit AG Financial Products Inc. between 2005 and 2008, before the crisis began.
The dispute began in 2008 when LBIE filed for bankruptcy, and in 2009, Assured exercised its rights under the master agreement to terminate the credit default swaps due to LBIE's default. LBIE originally sued in 2011 for $1.4 billion in damages, but after some of its claims were dismissed in 2013 and 2018, the number shrank to $485 million. Assured's estimate for the loss, however, was a mere $20 million. "The amount of damages claimed by LBIE in this case was staggering," counsel for Assured wrote in the memorandum.
Justice Melissa A. Crane already ruled in Assured's favor in the case on both LBIE's claims and Assured's own counterclaim for recovery, deciding in March that LBIE failed to prove its calculations of loss based on market prices at the time was reasonable. The judge found that Assured calculated the loss differently because it was unrelated to market prices — which, at the time, were too unstable to deem accurate. According to the memorandum, Justice Crane "expressly permitted" Assured to move to recover its fees and costs from the dispute. The remaining question, Assured posited, was whether the fees it sought were reasonable — and it argued they were.
New York courts typically use one of two approaches to evaluate whether fees are reasonable, according to the memorandum: considering the circumstances around the actual payment, and considering the factors identified in Matter of Freeman, dubbed the Freeman factors. The Freeman factors include the time and labor required for the case, the difficulty of the questions involved, the skill required, the lawyers' experience levels, the certainty of compensation and customary fee, and the amount involved. Assured asserted its fees were reasonable by all accounts.
The main reason for that assertion was that Assured already paid out the $58 million in full to its lawyers, experts and others. "If a client has determined the reasonableness of the fees at issue by paying them without any certainty of recovery from the other side, the court does not have to engage in a line-by-line review of the attorneys' fees," Assured wrote in the memorandum.
Additionally, Assured wrote, the amount it requested already reflected several discounts, including a 10% discount on all invoices since 2013 from Cleary Gottlieb Steen & Hamilton LLP, Assured's representing law firm. Assured also did not seek recovery for any fees from noncore attorneys, paralegals and nonlegal staff who each billed less than $10,000. The reductions totaled just under $6 million, Assured said.
As for the Freeman factors, Assured argued that the time and labor factor was easily met because its attorneys reviewed tens of thousands of documents, the depositions of 19 fact witnesses, and the reports and depositions of nine experts for the case. As for difficulty, skill and experience, the judge herself described the case as involving a "highly complex financial arrangement and valuation," so the attorneys handling it must have been highly skilled.
Assured said its lawyers were billed at their standard rates for the duration of the case — for the four main partners, that's about $1,761 per hour. That fee was well within the range of market rates used by other large New York firms, Assured said, including the firm LBIE used, which billed one attorney at $1,770 per hour.